CMBS Week in Review: Conduit Market Worries; Volatility as Delta Variant Makes Headlines

The opening ceremony for the 2020 Olympics kicked off early Friday, earmarking what would be a positive day for US stocks. The three major indexes all rallied on Friday after a less than stellar week. The S&P finished up 44.31 points (1%), reaching a weekly gain of 2%. The Dow rose 238.20 points (0.7%) and gained 1.1% while the Nasdaq gained 152.39 points (1.0%) on Friday to finish the week up 2.8%.

Investors saw some volatility as they mulled whether the economic recovery is in jeopardy as the Delta variant gets more attention. The National Bureau of Economic Research announced that the recession is over and lasted just two months.

Meanwhile, weekly jobless claims rose by 51,000 but economists believe the increase could reflect the summer variations of the data, including Independence Day and scheduled factory shutdowns. The largest state-level disruption came in Michigan, which has seen auto production distorted due to the chip shortage.

The three largest BWIC listings for the week were between $62 million and $130 million(combined notional amount), according to data from Solve Advisors. The office and retail sectors made up 52% of the conduit paper that went out for trade while the lodging and office sectors made up 70% of the SASB offerings.

CMBS cash spreads widened by as much as four basis points this week while CMBX 6-14 AAA spreads ranged from a basis point tighter to 2 basis points wider. Meanwhile, BBB- spreads stretched from slightly tighter to 37 basis points wider. In particular, BBB- spreads for CMBX 10, 11, and 14 all widened by 9-10 basis points.

A strong first half in a recovering CMBS market delivered over $60 billion in private-label issuance with commercial real estate collateralized loan obligations (CRE CLOs) leading the way with over $20 billion in new issuance. But should we be worried?Conduit issuance, which has historically been the sector frontrunner has fallen to a distant third. Trepp examined first-half 2021 CMBS issuance and broke down why the recovery of the CMBS market could take longer than expected. Read our full report here.

The TreppWire Podcast

In this week's episode of The TreppWire Podcast, we give a list of retail loans that can be noted as in 'purgatory.' Then, we dive into mall value reductions, share a 'man on the ground' view of the current state of NYC, and run through the latest office lease renewals. We also review the possibility that we may be defying normal economic measures in the current climate, with the news that the recession is over (and lasted just two months.) Listen here.

New Conduit Issuance

Top Credit Stories from the Week

Trepp's Credit Stories are originally published in our daily client newsletter, TreppWire. If you are interested in seeing coverage of credit stories in your inbox every morning, clickhere.

CMBS Investors Should Keep Tabs on the Big Parkmerced Loan(MRCD 2019-PARK) - CMBS investors would be wise to keep a close eye on the $1.5 billion debt on the nearly 3200-unit Parkmerced apartment complex. We've mentioned this loan in our multifamily researchand on The TreppWire Podcastseveral times over the last year. From 2019 to 2020, occupancy fell from 94% to 76% at the San Francisco, CA housing complex, causing some concern for investors. This month, we started to see some new data that added more concern.

Big Lease Renewal at Chicago Tower (JPMCC 2018-AON) - Kraft Heinz renewed its 162,000 square feet at Chicago's Aon Center, according to The Real Deal. The Windy City has seen a big jump in available space since the beginning of the pandemic. So the renewal is a positive sign for a big CMBS loan. The collateral is a 2.8 million-square-foot tower at 200 East Randolph Street. The property was built in 1972 and was renovated in 2018. The property backs sizable CMBS debt. The office collateralizes the $400 million single-asset JPMCC 2018-AONdeal and three other CMBS loans totaling another $136 million.

Big 2011 Retail Loans Pays Off Ahead of Maturity Date (WFRBS 2011-C5) - While many big retail loans have missed their 2021 balloon date, the $174.3 million The Domainloan bucked that trend this month. The collateral contains almost 900,000 square feet in an Austin, TX superregional mall. The loan was slated to mature next month. The note made up 30.1% of the collateral behind WFRBS 2011-C5before the payoff. In 2020, the loan posted a DSCR (NCF) of 1.61x when occupancy was 89%.

Short Term Extension Coming for CMBX 8 Retail Loan? (MSBAM 2014-C17) - The $40.8 million San Isidro Plaza I & IIloan was not paid off this month at its balloon date, but a short-term extension could be in the works. The collateral contains 283,885 square feet of retail space in a Santa Fe, NM shopping center. The special servicer workout strategy code has been reset to extension. In addition, remittance comments this month state that the borrower has requested a six-month extension. The terms of the extension are being finalized. The loan makes up 5.65% of the collateral behind MSBAM 2014-C17. That deal is part of CMBX 8.

Big New Lease for NJ Property (MSBAM 2014-C16) - Over the years, the $13.7 million Monmouth Plazaloan has seen its share of bad news. This week, owners signed a big new lease which should change the trajectory of the collateral. According to Patch, Hackensack-Meridian Health signed on for more than 45,000 square feet at the Monmouth Plaza. That represents more than half the space in the 84,792-square-foot, Eatontown, NJ property. At one time, Toys 'R' Us was the top tenant with 57.8% of the space. The retailer liquidated several years ago, leaving a big hole in the collateral.

Originally published in TreppWire, which is distributed every morning as a client-only email newsletter. TreppWire enables readers to stay up-to-date on market activity while providing a competitive advantage over others. TreppWire leverages Trepp's market expertise and proprietary data sets to provide daily market commentary, trend analysis, research, and breaking news to its clients.

Disclaimer: The information provided is based on information generally available to the public from sources believed to be reliable.

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